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UPDATE 1-ITT Educational withdraws 2014 outlook, shares slump

(Adds analyst comments, outlook)

May 22 (Reuters) - ITT Educational Services Inc, a for-profit college operator, withdrew its full-year forecast and warned of a fall in new enrollment after rising for three straight quarters, adding to the uncertainty surrounding the sector.

The company lost a third of its market value after ITT Educational said the fall in new enrollment would continue in the current quarter.

Shares of other education companies such as Strayer Education Inc, DeVry Education Group Inc, Career Education Corp and Grand Canyon Education Inc also fell by up to 5 percent.

ITT estimated a 4 percent fall in new student enrollments to 16,746 in the first quarter ended March 31. The company said it expected total student enrollments to have fallen 6 percent to 57,125.

"The stock is reacting like (ITT) is going to go out of business," said Wells Fargo analyst Trace Urdan. He said the reported results did not warrant such a huge sell-off.

ITT said it lost several recruitment days and received fewer inquiries in the first quarter due to the severe winter in the United States.

The company expects new enrollment to fall 10-15 percent in the current quarter ending June, Chief Executive Kevin Modany said on a conference call.

ITT, which offers technology-oriented undergraduate and graduate degree programs through its ITT Technical Institutes and Daniel Webster College, has more than 140 institutions in nearly 40 states.

The company withdrew its 2014 forecast, citing uncertainties related to the accounting of its PEAKS private student loan program and its guarantee obligations under it. ITT is yet to file its 2013 annual report for the same reason.

For-profit colleges have come under fire in recent years for their poor track record in helping students find employment.

Several state attorneys general have sought information related to recruitment, placement and lending practices from ITT and other for-profit colleges such as Career Education Corp , Corinthian Colleges Inc and Education Management Corp.

In February, the U.S. Consumer Financial Protection Bureau sued ITT and said it exploited students and pushed them into "high-cost private loans" that leave them strapped with debt.

ITT said on Thursday that it does not expect ruling on its motion to dismiss the complaint before late 2014.

The company's shares recouped some of their losses to be down 22 percent at $20.01 in late afternoon trading on the New York Stock Exchange. They fell to a year low of $17.54 earlier in the session.

(Reporting by Mridhula Raghavan in Bangalore; Editing by Kirti Pandey and Sriraj Kalluvila)